M/s. Maya Tradecom Pvt. Ltd., , Kolkata V. PCIT, Central - 1, Kolkata , Kolkata

ITA 1026/KOL/2018

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122937 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 13-02-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 15-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Revision of order; Opportunity of being heard; Assessment record
• Section: 263; 2; 143(3); 142(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH ‘C’, KOLKATA [Before Shri Rajesh Kumar, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.A. No. 1026/Kol/2018 Assessment Year : 2013-14 M/s. Maya Tradecom Pvt. Ltd. PAN: AAGCM 3527 K Vs . PCIT, Central -1, Kolkata Appellant Respondent Date of Hearing 14.02.2023 Date of Pronouncement 21.04.2023 For the Assessee None For the Revenue Shri G. Hukugha Sema, CIT ORDER Per Shri Sonjoy Sarma, JM: The captioned appeal has been filed at the instance of the assessee seeking to impugned the revisionary order passed by the ld. PCIT, Central - 1 passed u/s 263 of the Income-tax Act, 1961 dated 26.03.2018 in connection with assessment year 2013- 14. The assessee has raised the following grounds of appeal: “i. For that on the facts of the case, notice issued u/s 263 by the Pr. CIT, Central-1, Kolkata and the order passed u/s 263 dated 26.03.2018 are illegal and bad in law. ii. For that having regard to the facts and circumstances of the case, the Pr. CIT, Central-1, Kolkata has erred n setting aside the assessment order passed u/s 143(3) of the Act by the assessing officer on the ground that ‘no enquiry or verification’ have been carried out by the assessing officer which is not a fact. Adhoc disallowance of 25% of purchase as sighted by the Hon’ble Pr. CIT, Central-1, Kolkata is arbitrary and bad in law. iii. For that having regard to the facts and circumstances of the case, the Pr. CIT, Central-1, Kolkata has failed to consider that the assessment as framed by the assessing officer was after due application of mind and after considering the detailed replies on various dates as filed before him during the course of assessment proceedings. iv. For that without prejudice, the Pr. CIT, Central-1, Kolkata has wrongly and illegally held that the order passed by AO is erroneous and prejudicial to the interest when no independent enquiry has been made by PCIT. Hence the notice issued u/s 263 and the order passed u/s 263 is illegal and bad in law. 2 ITA No. 1026/Kol/2018 AY: 2013-14 M/s. Maya Tradecom Pvt. Ltd. v. For that without prejudice, the Pr. CIT, Central-1, Kolkata has erred in setting aside the assessment order and directing the AO to make de novo assessment when his notice and the order passed is limited to certain issues only. Hence the order passed u/s 263 is illegal and bad in law. vi. For that the evidence filed and material available on record have not been properly construed and judiciously interpreted, hence the addition/disallowance made is uncalled for. vii. For that the Hon’ble Pr. CIT, Central-1, Kolkata has erred in considering the calculation of closing stock stating that the closing stock is undervalued which is not a fact as the basis of calculation adopted by the Hon’ble Pr. CIT, Central-1, Kolkata doesn’t apply to a fashion market commodity. viii. For that the appellant craves leave to add, to alter to amend the above ground of appeal before or at the time of hearing.” 2. As per grounds of appeal, the essential grievance of the assessee is that the facts and circumstances of the case, the ld. PCIT was not justified in exercising revisionary power u/s 263 of the Act as the order passed by the AO is neither erroneous nor prejudicial to the interest of the revenue. To adjudicate the grievance of the assessee, the relevant facts are noted as follows: “i. The assessee filed its return of income for the assessment year 2013-14 on 30.09.2013 declaring total income of Rs. 9,50,608/-. Notice u/s 143(2) as well as u/s 142(1) were issued upon the assessee as the return filed by the assessee was subject to scrutiny assessment. In response to the notices issued by the ld. AO, the assessee filed various details before the ld. AO and the ld. AO assessed the income of assessee at Rs. 10,73,870/- as against the returned income of Rs. 9,50,608/- after making an addition of Rs. 1,23,264/- on account of disallowance of other expenses on estimated basis @ 5% of Rs. 24,64,285/-. ii. The assessment order so framed by the ld. AO u/s 143(3) of the Act was sought to be modified by the ld. PCIT in the proceeding u/s 263 of the Act as the ld. PCIT found that profit and loss a/c of the assessee has shown purchase of 3 ITA No. 1026/Kol/2018 AY: 2013-14 M/s. Maya Tradecom Pvt. Ltd. Rs.1,62,04,49,480/- and sale of Rs. 1,66,44,68,670/-. However, during the assessment proceeding, the ld. AO has given a finding that purchase of the proprietor concern has been inflated but no further enquiry made to the fact that genuineness of the purchase declared by the assessee. Moreover, while framing the assessment, the assessment record only purchase and sale ledger were available and no further details or documents were found relating to enquiry made by the AO to find out the genuineness of purchase shown by the assessee. Since the ld. AO did not made any enquiry or verification in respect of purchases shown by the assessee, the ld. PCIT found that the assessment order dated 24.03.2016 passed in the case of assessee has been found to be erroneous in so far as prejudicial to the interest of revenue in view of Clause (a) of Explanation 2 of section 263 of the Act. Further, the ld. PCIT noticed that valuation of closing stock was not done as per accounting principle and he find that rate taken for valuation of closing stock was too low to be not near to either cost or purchase rate or net realizable value and he views that the closing stock of the assessee was found to be under undervalued. In such a situation, the ld. PCIT viewed that assessment order dated 24.03.2016 passed in the case of assessee for the assessment year in question u/s 143(3) has been found to be erroneous and prejudicial to the interest of revenue and it is necessary to be revised as per the provisions of section 263 of the Act. Consequent to that, the ld. PCIT issued a show cause notice to the assessee and in response to such notice, ld. AR of the assessee appeared and he has filed a written submission which is reproduced as under: “That the main ground for 263 is regarding the inflated purchases value and the valuation of closing stock which is stated to be found not in compliance as per accounting principles. That for the first ground of 263, we would like to bring to your notice that during the course of assessment proceeding the assessee produced all the relevant documents before the ld. AO relating to its purchase and expenditure. A disallowance of 25% on purchase adhoc without any evidence may kindly be 4 ITA No. 1026/Kol/2018 AY: 2013-14 M/s. Maya Tradecom Pvt. Ltd. reconsidered by your honour for this particular matter of the assessee M/s. Maya Tradecom Pvt. Ltd. (PAN-AAGCM3527K) To substantiate our plea relating to your 263 notice, we have relied on the following case laws for your honour’s kind perusal. Reliance is placed in the case of CIT vs Lalit Bahsin 290 ITR 245 (Del) where the Delhi High Court deleted the addition on the ground that AO arrived at conclusion primarily on imaginative basis and conjectures rather than on the basis of any record or books of account and hence deleted the addition. Reliance is also placed in the case of Omega Estates V. IT0 106 ITD 427 (Chennai) where the Chennai Bench of ITAT held that since the revenue could not prove that actual consideration was more than that recorded by the assessee and since books of account had not be rejected, there was no basis of making the estimated addition. Reliance is further placed in the case of K.P. Varghese V. ITO, Ernakulam and Another 131 ITR 597 (SC) wherein the Supreme Court held that assessee must be shown to have received more than what is declared or disclosed by him as consideration and only then addition can be sustained. Reliance is also further placed in the case of Pioneer Himudyog P. Ltd. Vs. Assistant Commissioner of Income-tax (TTAT Kolkata) I.T.A. No.338/Kol/2017 where it has been opined that without rejecting the books of account, the ad hoc disallowance made is not sustainable in the eyes of law especially when Assessee has maintained books of account with supporting. Reliance is also further placed in the case of Balbir Singh Vs. ACIT (TTAT Jaipur) where it has been opined that expenses cannot be disallowed on estimation basis without verification of genuineness. That for the second ground of 263, Your Honour, we would like to bring to your notice that the assessee here is in the business of garments and fabric where the fashion changes on a regular basis and so does the value of stock. What has been done in Book of Accounts of Ms/ Maya Tradecom Put. Ltd., as far as the closing stock is considered, is taking a practical price point of the stock during the closing stock period either in the form of meters or in the form of Kg. and as Your Honour following the accounting policies which is not applicable in the assessee case as when the fabric used for manufacturing garments is out of fashion there is hardly any value left in it and on' that basis, this closing stock figure of Rs. 893/- is regarded as realizable value per unit instead of Rs. 111.21/-per unit. 5 ITA No. 1026/Kol/2018 AY: 2013-14 M/s. Maya Tradecom Pvt. Ltd. That during the course of hearing the Ld. A.O. was submitted with the documents relevant to this huge price fluctuation of stock from when he was convinced that there was a huge change in the unit price of relating to the opening and closing stock of the company. Considering the above facts and circumstances it is very clear that the queries raised by you have duly been considered by the AO at the time of making assessment u/s 143(3) therefore, Your Honour is requested to drop the proceedings u/s 263 of the I.T. Act, 1961.” 3. Ld. PCIT was not imposed by the pleadings of the assessee as per para 4.1 to 6 of its revisionary order, the ld. PCIT noted broadly as under: “4.1 In the above written submission, the Ld. AR has mainly argued against the adhoc disallowance of purchases contending that during the course of assessment proceeding, the assessee produced all relevant documents before the Ld. AO relating to its purchases and expenditures and hence, as pleaded by him, a disallowance of 25% of purchases on adhoc basis without any evidence may be reconsidered. In support of his arguments, the Ld. AR has referred to certain judgments as mentioned in the above written submission. Here, the proceeding u/s 263 has not been initiated to make adhoc disallowance out of purchases without any evidence but due to not making any enquiry or verification by the AO, even after making an observation in the assessment order that purchases arę inflated. Due to not making requisite enquiry or verification of the genuineness of purchases shown by the assessee, the assessment order passed by the AO has become deemed to be erroneous in so far as prejudicial to the interest of revenue. Therefore, now the AO is required to make enquiry from the parties from whom purchases have been shown about the quantity of clothes sold, rate of clothes sold by them to the assessee company and the genuineness of such sale made by them to the assessee company and if genuineness of sales made by them to the assessee company is not verified due to non-traceability of such parties or rate or quantity of such clothes sold by these parties to the assessee company is found to be inflated, an appropriate percentage of such purchases should be disallowed by the AO following the decision of Vijaye Protein (supra) in which 25% of purchases were disallowed due to purchase parties could not be traced out and genuineness of purchase bills could not be verified. Therefore, in this case also, the AO is directed to make necessary enquiries and verification of purchases to find out about the genuineness of purchases and the bills shown in their names and then, depending upon the result of enquiries, make appropriate disallowance out of purchases keeping in view the rates laid down by Gujrat High Court in case of Vijay Proteins (Supra). 6 ITA No. 1026/Kol/2018 AY: 2013-14 M/s. Maya Tradecom Pvt. Ltd. 4.2 As regards the undervaluation of closing stock, it has been contended by the Ld. AR that following of the accounting policies is not applicable in the assessee's case giving the reason that when the fabric used for manufacturing garments is out of fashion, there is hardly any value left in it and on that basis, the rate of valuation of closing stock at a figure of Rs. 8.93/- is regarded as relęasable value per unit instead of Rs. 111.21/-. He further contended that during the course of hearing, the Ld. AO was submitted with the documents relevant to this huge price fluctuations of stock from which, he was convinced that there was a huge change in the unit price of the clothes in the opening and closing stock of the company. However, I have not found any such detail available in the assessment record. The ld. AR before me also could not produce any evidence to justify the valuation rate of Rs. 8,91/- per unit for the closing stock. Therefore, the AO is directed to ask ne assessee to produce necessary evidence to justify the rate of closing stock taken by it at Rs. 8.93/- per unit and examine whether such rate which is very much lower than the purchase and sale rate can be taken for valuation of closing stock or not. For this purpose, he can examine the sale price of items taken in closing stock in the immediately succeeding year. Such sale price can give a fair idea of net realizable value and accordingly, the AO can determine the rate of closing stock. If sale price of items in closing stock in succeeding year is more than purchase price, valuation of closing stock should be done at cost i.e. purchase price. If sale price of items in closing stock in succeeding year is less than purchase price, such lower sale price is to be taken as net releasable value price of that item and closing stock should be valued at net realizable value. 5. In view of my above decision, the assessment order dated 24.03.2016 is set aside and restored to the file of the assessee to the extent of making enquiries and verification in respect of purchases and the valuation of closing stock in the manner as discussed in previous para No. 4 and then, the A0 should pass a fresh assessment order taking into account the finding of enquiries / verification and following my directions as discussed in previous para. Addition made on account of disallowance of expenses in original assessment order shall remain intact. 6. In the result, the original assessment order passed u/s 143(3) for A.Y. 2013-14 dated 24.03.2016 is set aside and restored to the file of the AO for making necessary enquiries/verification relating to genuineness of purchases and closing stock and passing of fresh assessment order with additions made in original assessment order remaining intact as per my direction in previous para.” 4. Aggrieved by the aforesaid direction of the ld. PCIT u/s 263 of the Act, assessee preferred an appeal before the Tribunal. 7 ITA No. 1026/Kol/2018 AY: 2013-14 M/s. Maya Tradecom Pvt. Ltd. 5. At the time of hearing, none appeared on behalf of the assessee nor filed any Paper Book before the Tribunal. However, the Tribunal has given sufficient opportunity by issuing several notices upon the assessee. In such a situation, we have no other option but to decide the appeal with the assistance of ld. DR. The ld. DR for the revenue relied upon the order passed by the ld. PCIT u/s 263 of the Act as the order passed by the ld. AO was erroneous as well as prejudicial to the interest of revenue. 6. We have carefully considered the submissions made by the ld. DR and perused the revisionary order passed by the ld. PCIT u/s 263 of the Act as well as material available on record. The supervisory jurisdiction u/s 263 of the Act enables the concerned PCIT to review the records of any proceedings and order passed therein by the ld. AO. It empowers the revisional commissioner concerned to call for and examined the records of another proceedings under the Act and if he considers that any order passed therein by the ld. AO is erroneous in so far as it is prejudicial to the interest of revenue, then he may (after giving assessee an opportunity of being heard and after making or causing to be made such enquiry as he deems necessary) passed such order thereon as the circumstances of the case justified including the order enhancing or modifying the assessment or cancelling the assessment and directing fresh assessment. Thus the revisionary power conferred u/s 263 of the Act is very wide with a view to address the revenue risks which are objectively justified. 7. While going through the material available on record, we noticed that at the time of passing of the assessment order, the ld. AO did not look into the matter while examining the purchase and valuation of the closing stock and during the assessment proceeding, the ld. AR of the assessee also could not able 8 ITA No. 1026/Kol/2018 AY: 2013-14 M/s. Maya Tradecom Pvt. Ltd. to controvert the fact as well as produce sufficient evidence before the ld. AO for valuation of closing stock at such low price and such details were also not available in the assessment records too as per the order of the ld. PCIT. We, therefore, viewed that revisionary order passed by the ld. PCIT need not required to be interfered by us any more and we sustained the order passed by the ld. PCIT. Accordingly, grounds of appeal taken by the assessee are dismissed. 8. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 21.04.2023. Sd/- Sd/- (Rajesh Kumar) (Sonjoy Sarma) Accountant Member Judicial Member Dated: 21.04.2023 Biswajit, Sr. PS Copy of the order forwarded to: 1. Appellant- M/s. Maya Tradecom Pvt. Ltd., 119A Mahatma Gandhi Road, 2 nd Floor, Kolkata – 700 007. 2. Respondent – PCIT, Central – 1, Kolkata. 3. Ld. CIT 4. Ld. CIT(A) 5. Ld. DR True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata